How to use dividends to find lucrative investments

by , 28 July 2015

If you're looking for a way of weighing up whether a company will succeed and thrive in the future, where do you start?

One indicator worth using is a company's dividend as a barometer of its future potential.

So how can you do this?

Read on to find out…


How to invest in the best valued companies using dividends


If you’re looking for long-term investment opportunities, consider finding companies trading at attractive values that could grow their dividends sustainably.

As Sam Morse, Fidelity European Value’s portfolio manager, tells Money Week, seek out companies growing their free cash flow from underlying operations. This will help to secure a future of increasing dividend payments consistently over time.

In effect, this strategy involves using a company’s dividend growth as a good sign of the overall financial health of the business.

By looking for the above aspects, you can build a portfolio that contains high quality companies to hold for the long-term. Your portfolio should have a low turnover.


What sort of companies will this investment strategy uncover?


These companies tend to have defensive qualities. While performing consistently, these shares should do better when the market is uncertain and nervousness rises.

Companies that may tick the boxes when it comes to dividends and performance include pharmaceuticals and solid financial institutions.

Look out for low debt levels, and high and sustainable growth in sales, earnings and dividends.

By focusing on the dividend and using it as a basis for company financial health, you could unearth some great stocks for your long-term portfolio that should consistently perform.

So there you have it. How to use dividends to find lucrative investments.

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